Why You Should Never Trust Wall Street Again by Ron Ianeri
Monday, February 22, 2010
Many of us are now managing our own money in the stock market. So, we are looking for signals from multiple sources to try to gain perspective and, ultimately, clues to the future direction of the market.
When all is said and done, there are basically four sources of information we look at. The first is Wall Street itself. The second is the government. The third is the media. The fourth includes independent analysts.
Each group can provide valuable information; however, each group can also provide erroneous information as well!
Our job as individual investors is not just to figure out where to find information; it is to evaluate information.
The evaluation process is not solely limited to determining if and how the information will affect the market but, also, to determine the legitimacy of said information.
If the News Seems Too Good to be True ... it is!
There are several factors that should be considered when weighing the legitimacy of information.
Our first source of information, and the one we will focus on today, is Wall Street.
Wall Street has analysts who give us their opinions about several fundamental aspects of a company’s financial situation.
The most commonly followed piece of information they provide is earnings estimates.
For a long time, a company’s earnings were compared to the earnings of the prior quarter. Then, seasonality became a factor -- a worthy factor, in my estimation -- and earnings for a specific quarter were then compared to the earnings of the same quarter a year earlier.
In either case, when comparing quarter to quarter, or the present quarter to the same quarter a year ago, we were looking at real numbers ... real growth or real contraction.
Technology Changes the Fundamental Landscape
Then the Internet came along. Brand-new companies with brand-new technologies burst onto the scene.
There were so many of those new companies, and they appeared so quickly, that most went public with very little earnings history. Most were spending big money to fund undeveloped ideas in the hopes of future success.
No one knew whether or not these companies were on the right track or not. Some would go on to be among the biggest, most-successful companies we know today. Most, however, would disappear as quickly as there appeared.
Most of the latter companies consistently reported losing quarters. The problem was how to judge which of the then-losers stood a chance to become a winner.
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So, with this new situation developing, Wall Street decided to usher in a new era of determining how to analyze earnings ... and lo and behold, we have earnings estimates.
Now, a company’s success or failure is no longer determined by how it is doing based on real numbers. Its success is determined by how Wall Street thinks it is doing based on arbitrary numbers determined by Wall Street!
Looking back at it, the introduction of earnings estimates was probably the right thing to do at that time, when so many companies had very little to no earnings history ... especially with so many brand-new start-ups. Wall Street had to give some guidance.
Were Wall Street's Intentions Ever Good?
However, like many ideas that start off good, greed has a way of making them turn bad. Remember the saying, "The road to hell is paved with good intentions!”
Suddenly, the indications of whether a company was doing well or not was defined by Wall Street estimates and not determined by real performance.
Wall Street had the way it needed to make companies look strong, even when they were not -- making it easy to raise money for them and, in the process, making it easier for Wall Street itself to make money.
They say that the proof is in the pudding. My bold statement needs to be backed by some fact to be legitimized.
My pudding is the latest market sell-off caused by -- or, at least, started by -- a collapse in the subprime debt market.
No 'Sell' Ratings ... I'm Not Buying it
We are all familiar with the story about how that crisis expanded and led to problems in the housing market and, finally, a full-blown credit crisis that destroyed such mainstay firms and institutions like Fannie Mae, Freddie Mac, Bear Stearns and Merrill Lynch ... not to mention the others that were brought to the brink of extinction.
Here, in what has been described as the worst condition since the Great Depression, the Dow Jones Industrial Average traded down from 14,200 to a low of just below 6,500 ... a whopping 54% drop in less than a year.
During that entire time, did you know that fewer than 5% of all stocks had an analyst’s "Sell" rating on them?
This fact seems totally ludicrous to me.
How can Wall Street, involved in this mess up to their necks -- knowing their own exposure as well as the exposure of all the major companies out there -- not know this was happening?
How is this possible?
On top of the ratings that Wall Street had on the market, how was it that these companies were still beating their Wall Street estimates while the economy was tanking ... and numerous major firms and institutions were going broke…..not to mention the smaller companies wiped out by this crisis?
Something smells rotten here.
The Street Deceives Those Who Would Eventually Save Them
Could Wall Street have been so wrong in their evaluations of the overall economy and individual companies in that economy?
I mean, how could these “experts in the market” be so wrong and leave themselves so dangerously exposed that it took the individual U.S. taxpayer to bail them out?
It is one thing for Wall Street companies to put themselves at blind, naked risk ... it is another thing to put us -- their clients -- at risk to anywhere near that level.
Why they would do it is a topic for another conversation. The "how" they would do it is what is important here.
Wall Street gets paid when you put money into the market. They make their money when you give them your money to invest.
Honestly now, are you more likely to invest in the market when it is going up or down? Although money can be made with the market selling off, the majority of investors will tell you that they invest when the market goes up.
Wall Street knows this to be true. Whether it is through brokerage or investment banking, Wall Street makes money when the market goes up!
Wall Street: Make the Markets Rise, Make More Money
It is in their best interest to see the market going up so much so that they will do everything in their power to influence the market to get moving upward ... including, but not limited to, lowering earnings estimates so companies can beat estimates and appear that they are doing well and handing out "Buy" recommendations like toilet paper.
Moral to the story: When listening to information from Wall Street or a Wall Streeter, make sure that you know that Wall Street has its own agenda ... one that can only be met by a rising market.
This can only be attained by you and me investing money into the market ... and that will only happen if we are confident that the market will go up.
(For those of us who use options, however, we know that we can make money when the market moves up, down or sideways. But Wall Street wants us to think the market is on a perpetual incline, which would in turn attract bullish investors like moths to a proverbial flame.)
Wall Street, in its insatiable quest to make the market go up, knows that this will only happen if the investor is confident. So, the news from Wall Street -- while not an outright lie -- is skewed bullish.
As an investor, we need to rely on news and information. When receiving information from Wall Street, make sure you consider the source!
Ron Ianieri
Contributing Editor
The Tycoon Report
P.S. How can you be informed without falling prey to the "news" that Wall Street is trying to feed you? It's simple: do your research, invest conservatively and profit with confidence.
Stocks can be expensive, and losses can be debilitating if things don't go your way. But even if your shares increase in value, you've still put a ton of money at risk for not much in the way of returns.
Learn how to spend far less money in the market, to position yourself for impressive returns on a small amount of money.
Saturday, February 27, 2010
Friday, February 26, 2010
DMA 25 February 2010 - Last day of the month
Today, there is nothing much to update… as the movements are volatile but within the ranges.
/DX (USD Index)
Looks set to inch up higher today, looking to break above 81.4 Today is the last day of February, and should /DX keep above 81, it would signal bullishness in the USD in coming weeks.
/CL
Yesterday, crude dropped to 77.05, and recovered later in the day. Today, closing below 78 would be bearish for Crude in the short term. It appears likely that this would happen as the uptrend channel was broken, and now is being tested as a resistance.
/GC
Gold did a mini rally with the slight USD drop. This may mark the trendline testing level and is starting to look bullish to me. Given the USD potential to the upside, I would wait and see for the precious metals.
/YI
Silver also is beginning to look bullish and may be heading up with the other precious metals today.
/ES
Yesterday’s mid-day rally took the Emini’s further up than the last high. Today’s should likely be a mild down day.
SPX
Similar to /ES, there are conflicting signs, and I will take a mild down day as a base case scencario. This could turn really ugly IF AIG post really bad results, affecting sentiment and the PMI data coming out later tonight.
Ref:
Note: Any material posted here is my sole opinion, and the opinion may differ from others. It is definitely NOT a solicitation to do anything else as a consequence of reading this material. The material presented here is intended for educational and discussion purposes only.
/DX (USD Index)
Looks set to inch up higher today, looking to break above 81.4 Today is the last day of February, and should /DX keep above 81, it would signal bullishness in the USD in coming weeks.
/CL
Yesterday, crude dropped to 77.05, and recovered later in the day. Today, closing below 78 would be bearish for Crude in the short term. It appears likely that this would happen as the uptrend channel was broken, and now is being tested as a resistance.
/GC
Gold did a mini rally with the slight USD drop. This may mark the trendline testing level and is starting to look bullish to me. Given the USD potential to the upside, I would wait and see for the precious metals.
/YI
Silver also is beginning to look bullish and may be heading up with the other precious metals today.
/ES
Yesterday’s mid-day rally took the Emini’s further up than the last high. Today’s should likely be a mild down day.
SPX
Similar to /ES, there are conflicting signs, and I will take a mild down day as a base case scencario. This could turn really ugly IF AIG post really bad results, affecting sentiment and the PMI data coming out later tonight.
Ref:
Note: Any material posted here is my sole opinion, and the opinion may differ from others. It is definitely NOT a solicitation to do anything else as a consequence of reading this material. The material presented here is intended for educational and discussion purposes only.
Thursday, February 25, 2010
DMA 24 February 2010 - day after tomorrow...
/DX
The dollar dipped and then made a nice rally... this dollar rally should last into next week, and take out the previous high of 81.43, thereby breaking out of the range it is in now. Closing Feb well above 81 would signal a longer term rally in the USD.
/CL
Crude’s rally wasn’t spectacular last night and not breaking above 80, it should be falling further down over the next few days-weeks.
/GC
Gold made several attempts to rally last night but eventually registered a gap down day, breaking down of the hourly range support. Today should close down and confirm its downtrend to somewhere near 1050 or slightly below. The indicators signal a downward bias for now.
/YI
A similar story for silver, down wave is starting…
/ES
The Emini futures look set for a down day albeit a smaller move down. An interesting thing that singaporeseeds highlighted to me last night was that there was a widening wedge… and it broke down of the wedge today in the afternoon, tested the wedge support but failed and should be heading down.
SPX
After a dead cat bounce, and registering a bullish harami at the top of an uptrend, I wonder if this double whammy actually tells more of a move down. However the indicators are mixed and looks like a milde down or mulling around the 50MA.
That’s a quick wrap from me…
The Trendspotting MadScientist
Note: Any material posted here is my sole opinion, and the opinion may differ from others. It is definitely NOT a solicitation to do anything else as a consequence of reading this material. The material presented here is intended for educational and discussion purposes only.
The dollar dipped and then made a nice rally... this dollar rally should last into next week, and take out the previous high of 81.43, thereby breaking out of the range it is in now. Closing Feb well above 81 would signal a longer term rally in the USD.
/CL
Crude’s rally wasn’t spectacular last night and not breaking above 80, it should be falling further down over the next few days-weeks.
/GC
Gold made several attempts to rally last night but eventually registered a gap down day, breaking down of the hourly range support. Today should close down and confirm its downtrend to somewhere near 1050 or slightly below. The indicators signal a downward bias for now.
/YI
A similar story for silver, down wave is starting…
/ES
The Emini futures look set for a down day albeit a smaller move down. An interesting thing that singaporeseeds highlighted to me last night was that there was a widening wedge… and it broke down of the wedge today in the afternoon, tested the wedge support but failed and should be heading down.
SPX
After a dead cat bounce, and registering a bullish harami at the top of an uptrend, I wonder if this double whammy actually tells more of a move down. However the indicators are mixed and looks like a milde down or mulling around the 50MA.
That’s a quick wrap from me…
The Trendspotting MadScientist
Note: Any material posted here is my sole opinion, and the opinion may differ from others. It is definitely NOT a solicitation to do anything else as a consequence of reading this material. The material presented here is intended for educational and discussion purposes only.
Wednesday, February 24, 2010
After the bounce - Market Analysis for 25/02/2010 by Singaporeseeds
The bounce was slightly bigger than I thought but it’s still a bounce. The market does not seem to be able to have any bullishness left to go any higher today.
Today, we should be making news lows for the week. I’m expecting the markets to end badly in the last 2 days of the week. Weekly support at 1,080 for the S&P and 10,160 on the Dow.
Today, we should be making news lows for the week. I’m expecting the markets to end badly in the last 2 days of the week. Weekly support at 1,080 for the S&P and 10,160 on the Dow.
BREAK DAY! – Market Analysis for 24/02/2010 by Singaporeseeds
Nice failure of the 50 day moving average. It finally came when I thought it would be delayed again.
Dow daily chart
S&P daily chart
NASDAQ daily chart
Today we might see some bounces on the indexes as the tide turns. I’m not expecting a big downward candle today. We might see the Dow test resistance at 10,340 and the S&P at 1,110 before any big downward movement in the indexes. My initial target for this downward reversal over the next few days would be the early Feb 2010 lows.
I was looking at my charts earlier today and I noticed a commodity that I’ve traded a long time ago.
Daily chart of the Natural Gas ETF
It’s at the lowest I’ve ever seen. Found this when it was at $9 in Dec 09 and made a nice run from it. If I’m going to pick something to invest long term in, this would be it. Buy and hold it for the next 5-6 years and you will be a happy man. =)
Dow daily chart
S&P daily chart
NASDAQ daily chart
Today we might see some bounces on the indexes as the tide turns. I’m not expecting a big downward candle today. We might see the Dow test resistance at 10,340 and the S&P at 1,110 before any big downward movement in the indexes. My initial target for this downward reversal over the next few days would be the early Feb 2010 lows.
I was looking at my charts earlier today and I noticed a commodity that I’ve traded a long time ago.
Daily chart of the Natural Gas ETF
It’s at the lowest I’ve ever seen. Found this when it was at $9 in Dec 09 and made a nice run from it. If I’m going to pick something to invest long term in, this would be it. Buy and hold it for the next 5-6 years and you will be a happy man. =)
DMA 24 February 2010 by MadScientist
For a second day in a row, the downdraft continues in the SPX and commodities, much more so in SPX, precious metals, less in crude.
/DX
As usual, the dollar is still leading the direction for now, and it appears to be consolidating at the upper ranges of the boundary. An intraday reversal action is about to be confirmed, at this point of analysis, but the feel is that there will be more upside to the USD although limited. Am expecting a breakout late this week Friday or next week for a couple of days before looking for a new direction analysis.
/CL
Noticed that Interest is increasing, and the daily charts are in a uptrending channel. Crude has lost some ground in opposing fashion to the dollar but has kept its fall from being dramatic. Its divergence from the USD may be beginning. Breaking above or below 79.5 or 78.5 respectively would signal its short term direction.
/GC
Gold is ranging near the lower end, with a gap down 2 days ago. Although it looks like the gap is unlikel to be closed, it is also not committed to close a gap (up) a week ago. Being trapped within ranges of these two gaps, a closing of one of them would indicate the direction. Furthermore, a down close today would increase the probability of Gold going down much further.
/YI
Silver futures charts are clearer and more committed in action. A lower high was qualified 2 days ago and breaking the previous low of 14.70 would be very bearish of silver. If it is to happen, it should happen next week.
/ES
The E-mini futures (S&P500 futures) have a daily reversal signal and hourly action are pointing down. The SPX is likely to open down today.
SPX
The SPX has failed the 50 period moving average (50MA) on daily and hourly. The long down candle yesterday confirms a lower high was qualified (see previous DMA posting for the chart outlook).
Overall, the dollar is mildly bullish but equity markets appear more bearish. Commodities should suffer a pullback due to the dollar’s advance further but Crude is looking to break that relationship.
Watch out for more volatility and downside bias.
~MadScientist~
Note: Any material posted here is my sole opinion, and the opinion may differ from others. It is definitely NOT a solicitation to do anything else as a consequence of reading this material. The material presented here is intended for educational and discussion purposes only.
/DX
As usual, the dollar is still leading the direction for now, and it appears to be consolidating at the upper ranges of the boundary. An intraday reversal action is about to be confirmed, at this point of analysis, but the feel is that there will be more upside to the USD although limited. Am expecting a breakout late this week Friday or next week for a couple of days before looking for a new direction analysis.
/CL
Noticed that Interest is increasing, and the daily charts are in a uptrending channel. Crude has lost some ground in opposing fashion to the dollar but has kept its fall from being dramatic. Its divergence from the USD may be beginning. Breaking above or below 79.5 or 78.5 respectively would signal its short term direction.
/GC
Gold is ranging near the lower end, with a gap down 2 days ago. Although it looks like the gap is unlikel to be closed, it is also not committed to close a gap (up) a week ago. Being trapped within ranges of these two gaps, a closing of one of them would indicate the direction. Furthermore, a down close today would increase the probability of Gold going down much further.
/YI
Silver futures charts are clearer and more committed in action. A lower high was qualified 2 days ago and breaking the previous low of 14.70 would be very bearish of silver. If it is to happen, it should happen next week.
/ES
The E-mini futures (S&P500 futures) have a daily reversal signal and hourly action are pointing down. The SPX is likely to open down today.
SPX
The SPX has failed the 50 period moving average (50MA) on daily and hourly. The long down candle yesterday confirms a lower high was qualified (see previous DMA posting for the chart outlook).
Overall, the dollar is mildly bullish but equity markets appear more bearish. Commodities should suffer a pullback due to the dollar’s advance further but Crude is looking to break that relationship.
Watch out for more volatility and downside bias.
~MadScientist~
Note: Any material posted here is my sole opinion, and the opinion may differ from others. It is definitely NOT a solicitation to do anything else as a consequence of reading this material. The material presented here is intended for educational and discussion purposes only.
Tuesday, February 23, 2010
DMA 23 Feb 2010
Got the down day yesterday in the SPX as well as commodities. The relationship is still not broken, and especially for Crude (/CL), I am looking for that break. The dollar rules again, and is now within a range. The SPX is hanging about the 50 day moving average and is ranging as well.
I am expecting more downdraft of SPX and commodities (USD to spike up) the later part of this week, without being surprised of a higher spike in SPX and commodities (USD to retrace a little) today if it happens.
So, game plan is still the same… for now, am just watching for some commitment.
Below is a photo of my expectation for the coming weeks/months. Some things do not click, but the picture should be sorted out soon. I still expect the downdraft of the markets with a high probability and am looking out for fundamental signals to confirm. Breaking 1020 will trigger a trend change bias.
The Trendspotting MadScientist
Note: Do note that any material posted here is of my sole opinion, and my opinion may differ from others. It is definitely NOT a solicitation to do anything else as a consequence of reading this material. The material presented here is intended for educational purposes only.
I am expecting more downdraft of SPX and commodities (USD to spike up) the later part of this week, without being surprised of a higher spike in SPX and commodities (USD to retrace a little) today if it happens.
So, game plan is still the same… for now, am just watching for some commitment.
Below is a photo of my expectation for the coming weeks/months. Some things do not click, but the picture should be sorted out soon. I still expect the downdraft of the markets with a high probability and am looking out for fundamental signals to confirm. Breaking 1020 will trigger a trend change bias.
The Trendspotting MadScientist
Note: Do note that any material posted here is of my sole opinion, and my opinion may differ from others. It is definitely NOT a solicitation to do anything else as a consequence of reading this material. The material presented here is intended for educational purposes only.
Judgement Day Delayed! ~ by Singaporeseeds
After all the anticipation, the markets formed another doji on the daily charts, indicating indecision. This is quite common at market tops when the bulls and bears battle it out.
I'm looking at the indexes moving more or less sideways for the next 1-3 days. I'm not expecting the Dow to move any higher than 10450. The doji yesterday had done nothing but postphoned the market reversal to a later date.
I'm looking at the indexes moving more or less sideways for the next 1-3 days. I'm not expecting the Dow to move any higher than 10450. The doji yesterday had done nothing but postphoned the market reversal to a later date.
Sunday, February 21, 2010
MAKE OR BREAK DAY! - Market Analysis for 22/02/2010 by Singaporeseeds
"In the short term, we would be up for the next few days and most probably be up for this shortened week too." ~ from my market analysis for the week beginning 15th Feb 2010
The markets (all 3 indexes) rallied as expected over the week and closed the week up right at the 50 day moving average. However the Dow and S&P closed Friday with a doji. The doji is not so clear on Prophet charts but its clearly a doji on TOS Futures charts which i regard as more accurate.
Dow Daily charts
S&P Daily charts
NASDAQ Daily charts
This week, we will know whether the indexes have the power to continue the rally that had started since March 09. Anything short of a big bullish day today and tomorrow may spell doom for the market because we might then be on the downtrend back to the March 09 lows. This downtrend may take up to a year to run its course so there would be plenty of trading opportunities in between.
Monday, February 15, 2010
Bouncing on the moving averages before the final big fall - Market Analysis for week beginning 15th Feb 2010 by Singaporeseeds
Over the past week, the indexes formed divergences with a few indicators. Usually this indicates that we might be going up for a couple more days until the divergences closes. Hence I believe the indexes are now going to move up towards their respective 50 day moving averages. (red line) I still stand by my previous analysis of the indexes being in a downtrend and we might be making new lows by the end of March. The target for this current downtrend will be the March 09 lows.
Dow Daily chart
S&P Daily chart
NASDAQ Daily chart
In the short term, we would be up for the next few days and most probably be up for this shortened week too. I will be in Sabah for the week and I will have to see if the hotel that I’m staying has internet access. Otherwise I wish all my trading buddies good health and lots of luck this new year! Happy Chinese New Year!
Dow Daily chart
S&P Daily chart
NASDAQ Daily chart
In the short term, we would be up for the next few days and most probably be up for this shortened week too. I will be in Sabah for the week and I will have to see if the hotel that I’m staying has internet access. Otherwise I wish all my trading buddies good health and lots of luck this new year! Happy Chinese New Year!
Thursday, February 4, 2010
Recap for the month of January and market analysis for 05/02/2010 by Singaporeseeds
Recap for the month of January
This is from my market analysis for 20/01/2010 where i said that we were going DOWN:
As you can see from the charts below, we did break out (break down actually) of the range that the markets had been in later in the week and i called the high at exactly the peak of the market on the 19th Jan 2010. With the exception of the first day of Feb when i took off my positions to roll them, I've been short the markets everyday since then.
Daily chart of the Dow
Daily chart of S&P
Daily chart of Nasdaq
Market Analysis for 05/02/2010
Now with the bounce back to the 50 day MAs technically over, we are going to continue with the current trend down. However two big factors that will affect the markets tonight will be the US non-farm payrolls and the Europe debt situation. My indicators are showing a slightly oversold situation with an interesting pattern. To me, there’s two ways to interpret this:
1) We are done with the tank and will be bouncing up soon.
2) The tank over the past few days is just the tip of the iceberg.
However looking at the momentum of the tank, I think I’ll prefer the 2nd option. But the Dow closed right on the psychological 10,000 level last night so this means that:
1) We might be either bouncing a bit today
2) We will break right through the 10,000 level like a brick thrown in water.
Ok, enough of choices. I believe we would be going flat or down but a lot depends on the results of the non-farm payroll tonight.
This is from my market analysis for 20/01/2010 where i said that we were going DOWN:
My Market Analysis for 20/01/2010
The market bounced off my supports yesterday. But it seemed to be too little and with the financials looking weak, I do not think this bounce will follow through today. I’m still sticking with my analysis that the markets are just gyrating with increasingly bigger swings due to the earnings season. We should breakout of this range that the indexes had been in since the start of the year sometime late this week. Currently there are more indicators pointing to a break downwards rather than a break upwards.
I believe that we have passed the high of the month already and from now on, it should be sideways and down.
As you can see from the charts below, we did break out (break down actually) of the range that the markets had been in later in the week and i called the high at exactly the peak of the market on the 19th Jan 2010. With the exception of the first day of Feb when i took off my positions to roll them, I've been short the markets everyday since then.
Daily chart of the Dow
Daily chart of S&P
Daily chart of Nasdaq
Market Analysis for 05/02/2010
Now with the bounce back to the 50 day MAs technically over, we are going to continue with the current trend down. However two big factors that will affect the markets tonight will be the US non-farm payrolls and the Europe debt situation. My indicators are showing a slightly oversold situation with an interesting pattern. To me, there’s two ways to interpret this:
1) We are done with the tank and will be bouncing up soon.
2) The tank over the past few days is just the tip of the iceberg.
However looking at the momentum of the tank, I think I’ll prefer the 2nd option. But the Dow closed right on the psychological 10,000 level last night so this means that:
1) We might be either bouncing a bit today
2) We will break right through the 10,000 level like a brick thrown in water.
Ok, enough of choices. I believe we would be going flat or down but a lot depends on the results of the non-farm payroll tonight.
Monday, February 1, 2010
My Market Analysis for 02/02/2010 by Singaporeseeds
The indexes bounced instead of break my supports. This changes the outlook for the next 2 days from bearish to bullish. It seems that we are going to get that long-awaited bounce before the final tank. The upside targets are 10,350 for the Dow, 1,098 for S&P and 2,200 for NASDAQ. These targets should be hit in the next 2 days. We would be continuing our downtrend from Thursday onwards. With the non-farm payroll coming up on Friday, I believe this downtrend should not be too difficult to resume.
This is a wave 2 on this downtrend where I believe we should be moving back to the weekly 50 SMA for all three indexes.
Dow weekly chart (red line is the 50 SMA)
S&P weekly chart (red line is the 50 SMA)
NASDAQ weekly chart (red line is the 50 SMA)
I believe eventually (in 1-2 years time) we would be breaking the March 2009 lows. So brace yourselves for another round of wage and job cuts.
This is a wave 2 on this downtrend where I believe we should be moving back to the weekly 50 SMA for all three indexes.
Dow weekly chart (red line is the 50 SMA)
S&P weekly chart (red line is the 50 SMA)
NASDAQ weekly chart (red line is the 50 SMA)
I believe eventually (in 1-2 years time) we would be breaking the March 2009 lows. So brace yourselves for another round of wage and job cuts.
Discover How January's Action Will Position You for Future Profits...by Ron Ianeri
Discover How January's Action Will Position You for Future Profits...
Monday, February 1, 2010
The market had a pretty bad week last week, as a major support level on the Dow Jones Industrial Average was broken and confirmed.
All week long, the Dow struggled to maintain the 10,200 level. Then, finally, on Thursday, the Dow closed well-below 10,200. It closed down again on Friday, which was technical confirmation of the 10,200 breakdown.
Last week’s action was important on two levels that I’d like to talk about.
The first topic of conversation is known as the "January barometer."
'The January Barometer': Market Under Pressure?
The January barometer states that, as the S&P 500 goes (i.e., performs) in January, so goes the rest of the year.
For the record, the S&P was down 3.3% in January. A down January is supposed to indicate a down year ahead for stocks.
Now, I know what you are thinking ... this is one of those stupid indicators that really has no connection to the market, and this is one of those coincidental things.
In many cases, this would be true. But when looking back into history and testing this “theory,” you can’t ignore the results.
Since 1950, there have been 20 down Januaries in the S&P. Twelve times, the market finished the year down. Seven times, the S&P battled back to finish unchanged for the year.
Only once in those 20 years did the S&P finish higher after a losing January.
Wow, those numbers are enough to make you take a second look at this. So, I did!
A Confirmation From the Dow
I looked at the same theory, but this time I used the Dow. Guess what I found ... the numbers were pretty much the same, especially on the downside.
The really scary thing was that, every time the Dow was down in January, there were only four times it finished up for the year.
Darn thing was right 95% of the time!
You might talk about coincidences, like the supposed "Super Bowl Indicator," which says the market is almost always up when an AFC team wins the Super Bowl.
This may be true; however, there is really no connection between the two.
There is no explainable reason for the market to be up when the AFC wins the Super Bowl. They are totally unrelated!
So, when looking at the January barometer, we must find an explanation that indicates some type of logical pattern or relationship that connects the two.
You need to look no further than another January theory called the "January effect."
An 'Effective' Indicator?
The January effect says that, in the first week or so in January, the market will be up.
This is due to the fact that many people use the week between Christmas and New Year's to dump their losing positions so that they can get the tax write-off from the trading losses.
After the New Year, the positions are bought back into the portfolio. All of this “re-buying” creates an increase in demand, and the surge propels the market higher in the first week or so in January.
Now, if those who sold out their positions between Christmas and New Year's decided not to buy those positions in January, then there would probably be no catalyst for the buying in early January that would get the year off to a good start.
You might say that a lack of buying does not necessarily lead to an increase in selling. But, let me tell you from experience, it does!
Where is the Opportunity in All This?
As a trader or investor, we look for patterns in the market, especially recurring ones. In the case of the January effect, we see the market trade up in the first week or so of the year, a very high percentage of the time.
There is the recurring pattern ... market up the first week or so of the New Year.
Boom -- there is a trading opportunity. (Be ready to leverage these opportunities with options. Click here to learn how.)
But traders realize that -- just as there is potential in the occurrence of a persistent pattern -- there is also opportunity in the non-occurrence of that recurring pattern.
The absence of this highly regular event should draw questions from those astute traders who notice this non-occurrence.
Why did the January effect not happen? There are many possible reasons, but they all ultimately point to one answer … a lack of confidence in the market’s ability to go up!
What's an Investor to Do?
So, as a trader, I will come to the conclusion that people did not re-buy, after selling at the end of the previous year’s tax-selling, because they do not have confidence in the market.
So I sell.
And so do many others.
Now, the rout is on and gaining momentum. The selling begets more selling.
By the time January ends, all of the selling -- which started with the lack of buying in the first week or so of January (a no-show of the January effect) -- produced a round of selling that took us through the end of the month, creating a losing first month of the year.
Now this makes some sense!
The second topic of conversation picks up where the first leaves off.
In order for the selling that starts after the no-show of the January effect to continue through the rest of the month, there needs to be momentum. Just some selling is not going to do it.
More than that is necessary to ensure January finishes down for the month.
What we need is some technical help. We need the selling to break some support levels to draw in more sellers ... in this case, the technical sellers.
Last week, we got exactly that; a confirmed technical breakdown.
The signs of this potential breakdown were glowing. Normally, when the market comes down to a support level, the market bounces up off the support level ... hence the term “support.”
At the end of the week before last, the Dow had traded down to its support level of 10,200. After touching the support level, the market did bounce up off of that level, but not with much conviction.
With a lackluster bounce, the market traded back down to the support again.
This happened several times until the support level finally broke. But the break of the 10,200 level was not convincing. The level was only broken by a little bit.
Enter the Plunge Protection Team!
Three times, the Plunge Protection Team tried to drive the market up by jumping into the pre-market futures and creating the appearance of a positive opening.
The PPT’s idea was to get some upside momentum and get it supported by the earnings reports due out later.
This seemed to work, but only temporarily.
Each time last week, the market opened up but ended either down or unchanged as the upward jump-start provided by the PPT fizzled by the close.
This showed a real weakness in the market, which inevitably, on Thursday, closed convincingly below Dow 10,200.
Knowing that technicians look not only for the violation of support but also for confirmation, the PPT had one more shot at trying to avert this breakdown.
And, it was important. They already had the January barometer working against them, which would definitely hurt investor confidence going forward.
Now, they were looking at a possible breakdown of a very, very strong support level.
That does not bode well for the idea of building the consumer confidence that everyone tells us is so important to consumer spending, which constitutes 70% of the economy.
They tried hard to make a push in the pre-market futures on Friday, which led to a positive opening and a run toward 10,200. It failed in the late morning.
Another run occurred later in the day into the close. But that, too, failed by the bell. The market finished down for the day -- a confirmation of the Thursday breakdown.
Things do not look very promising and, if the January barometer is as accurate as it has been in the past, we could be in for a long, ugly year!
Ron Ianieri
Contributing Editor
The Tycoon Report
P.S. I don't panic when stocks start to slide, because I use options to get positioned for profits whether stocks are soaring or sinking.
Nothing beats making great returns when the market's going up, and then playing it to the downside when it starts to slide!
With options, every day that the markets are open is an opportunity to make money. My Options GPS course is designed to make you into a savvy, strong and confident options investor ... one who knows how to profit in any market condition!
Monday, February 1, 2010
The market had a pretty bad week last week, as a major support level on the Dow Jones Industrial Average was broken and confirmed.
All week long, the Dow struggled to maintain the 10,200 level. Then, finally, on Thursday, the Dow closed well-below 10,200. It closed down again on Friday, which was technical confirmation of the 10,200 breakdown.
Last week’s action was important on two levels that I’d like to talk about.
The first topic of conversation is known as the "January barometer."
'The January Barometer': Market Under Pressure?
The January barometer states that, as the S&P 500 goes (i.e., performs) in January, so goes the rest of the year.
For the record, the S&P was down 3.3% in January. A down January is supposed to indicate a down year ahead for stocks.
Now, I know what you are thinking ... this is one of those stupid indicators that really has no connection to the market, and this is one of those coincidental things.
In many cases, this would be true. But when looking back into history and testing this “theory,” you can’t ignore the results.
Since 1950, there have been 20 down Januaries in the S&P. Twelve times, the market finished the year down. Seven times, the S&P battled back to finish unchanged for the year.
Only once in those 20 years did the S&P finish higher after a losing January.
Wow, those numbers are enough to make you take a second look at this. So, I did!
A Confirmation From the Dow
I looked at the same theory, but this time I used the Dow. Guess what I found ... the numbers were pretty much the same, especially on the downside.
The really scary thing was that, every time the Dow was down in January, there were only four times it finished up for the year.
Darn thing was right 95% of the time!
You might talk about coincidences, like the supposed "Super Bowl Indicator," which says the market is almost always up when an AFC team wins the Super Bowl.
This may be true; however, there is really no connection between the two.
There is no explainable reason for the market to be up when the AFC wins the Super Bowl. They are totally unrelated!
So, when looking at the January barometer, we must find an explanation that indicates some type of logical pattern or relationship that connects the two.
You need to look no further than another January theory called the "January effect."
An 'Effective' Indicator?
The January effect says that, in the first week or so in January, the market will be up.
This is due to the fact that many people use the week between Christmas and New Year's to dump their losing positions so that they can get the tax write-off from the trading losses.
After the New Year, the positions are bought back into the portfolio. All of this “re-buying” creates an increase in demand, and the surge propels the market higher in the first week or so in January.
Now, if those who sold out their positions between Christmas and New Year's decided not to buy those positions in January, then there would probably be no catalyst for the buying in early January that would get the year off to a good start.
You might say that a lack of buying does not necessarily lead to an increase in selling. But, let me tell you from experience, it does!
Where is the Opportunity in All This?
As a trader or investor, we look for patterns in the market, especially recurring ones. In the case of the January effect, we see the market trade up in the first week or so of the year, a very high percentage of the time.
There is the recurring pattern ... market up the first week or so of the New Year.
Boom -- there is a trading opportunity. (Be ready to leverage these opportunities with options. Click here to learn how.)
But traders realize that -- just as there is potential in the occurrence of a persistent pattern -- there is also opportunity in the non-occurrence of that recurring pattern.
The absence of this highly regular event should draw questions from those astute traders who notice this non-occurrence.
Why did the January effect not happen? There are many possible reasons, but they all ultimately point to one answer … a lack of confidence in the market’s ability to go up!
What's an Investor to Do?
So, as a trader, I will come to the conclusion that people did not re-buy, after selling at the end of the previous year’s tax-selling, because they do not have confidence in the market.
So I sell.
And so do many others.
Now, the rout is on and gaining momentum. The selling begets more selling.
By the time January ends, all of the selling -- which started with the lack of buying in the first week or so of January (a no-show of the January effect) -- produced a round of selling that took us through the end of the month, creating a losing first month of the year.
Now this makes some sense!
The second topic of conversation picks up where the first leaves off.
In order for the selling that starts after the no-show of the January effect to continue through the rest of the month, there needs to be momentum. Just some selling is not going to do it.
More than that is necessary to ensure January finishes down for the month.
What we need is some technical help. We need the selling to break some support levels to draw in more sellers ... in this case, the technical sellers.
Last week, we got exactly that; a confirmed technical breakdown.
The signs of this potential breakdown were glowing. Normally, when the market comes down to a support level, the market bounces up off the support level ... hence the term “support.”
At the end of the week before last, the Dow had traded down to its support level of 10,200. After touching the support level, the market did bounce up off of that level, but not with much conviction.
With a lackluster bounce, the market traded back down to the support again.
This happened several times until the support level finally broke. But the break of the 10,200 level was not convincing. The level was only broken by a little bit.
Enter the Plunge Protection Team!
Three times, the Plunge Protection Team tried to drive the market up by jumping into the pre-market futures and creating the appearance of a positive opening.
The PPT’s idea was to get some upside momentum and get it supported by the earnings reports due out later.
This seemed to work, but only temporarily.
Each time last week, the market opened up but ended either down or unchanged as the upward jump-start provided by the PPT fizzled by the close.
This showed a real weakness in the market, which inevitably, on Thursday, closed convincingly below Dow 10,200.
Knowing that technicians look not only for the violation of support but also for confirmation, the PPT had one more shot at trying to avert this breakdown.
And, it was important. They already had the January barometer working against them, which would definitely hurt investor confidence going forward.
Now, they were looking at a possible breakdown of a very, very strong support level.
That does not bode well for the idea of building the consumer confidence that everyone tells us is so important to consumer spending, which constitutes 70% of the economy.
They tried hard to make a push in the pre-market futures on Friday, which led to a positive opening and a run toward 10,200. It failed in the late morning.
Another run occurred later in the day into the close. But that, too, failed by the bell. The market finished down for the day -- a confirmation of the Thursday breakdown.
Things do not look very promising and, if the January barometer is as accurate as it has been in the past, we could be in for a long, ugly year!
Ron Ianieri
Contributing Editor
The Tycoon Report
P.S. I don't panic when stocks start to slide, because I use options to get positioned for profits whether stocks are soaring or sinking.
Nothing beats making great returns when the market's going up, and then playing it to the downside when it starts to slide!
With options, every day that the markets are open is an opportunity to make money. My Options GPS course is designed to make you into a savvy, strong and confident options investor ... one who knows how to profit in any market condition!
Market Analysis for 01/02/2010
The first day of February. Seasonally, February is one of the most bearish months off the year, the other being September. With the chart setup pattern, I believe this month will be the same.
All three indexes are in a confirmed downtrend since 2 Fridays ago and we had broken the 100 day moving average last Friday. I believe today will be a down day and the week and the month should end down. We should bounce a bit at market open but I do not think the bullishness will hold seeing that the indexes had stayed below my MOBO bands for the past week.
I believe we will still be moving back up to test (and fail) the 50 day moving average but historically this could happened anytime between a week to a month. As long as the indexes fail to break within my MOBO bands, this bounce could not happen.
All three indexes are in a confirmed downtrend since 2 Fridays ago and we had broken the 100 day moving average last Friday. I believe today will be a down day and the week and the month should end down. We should bounce a bit at market open but I do not think the bullishness will hold seeing that the indexes had stayed below my MOBO bands for the past week.
I believe we will still be moving back up to test (and fail) the 50 day moving average but historically this could happened anytime between a week to a month. As long as the indexes fail to break within my MOBO bands, this bounce could not happen.
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